Has Growth Been Pro-poor In The Philippines?

Has growth been pro-poor in the Philippines? Cielito C. Goño Intersect Vol. 22, No. 4 December 2007

Good news, bad news President Gloria Macapagal Arroyo was beaming when she made the announcement last August 30 before reporters in Malacañang Palace. The Philippines’ second quarter real gross domestic product (GDP) grew by 7.5 percent, pushing average real growth to 7.3 percent for the first half of this year. These figures are the highest measured for any quarter in around 20 years. In the region, it trailed only Singapore’s 8.6 percent and China’s 11.9 percent growth rates, besting those of Hong Kong, Malaysia and Indonesia. Two months later, the Social Weather Stations (S.W.S.) announced September 2007 data on self-rated poverty that did not complement the rosy picture of a supposedly bullish economy. The S.W.S. survey results suggest that 52 percent of Filipino families (about nine million families) rated themselves poor for the third quarter. These figures are indicative of deterioration from the reported range of 47 percent to 53 percent for the same period last year. Moreover, 43 percent (around 7.5 million families) considered themselves “food poor” as of September 2007. For the first two quarters of the same year, self-reported food poverty ranged from only 37 percent to 39 percent. The rise in self-assessed food poverty seems even more distinctive than the increase in selfreported poverty. Is the Philippines’ growth pro-poor? Economic growth is generally acknowledged as an accompanying condition of poverty reduction. That is, the overwhelming evidence has been that periods of significant decline in poverty have coincided with periods of economic growth. Thus, when there is a good upshot in economic growth (taking only GDP as the indicator of this growth), people tend to ask whether poverty reduction was also less sluggish.

Indeed, for many non-government organizations and development agencies in the Philippines, the whole point of examining and pursuing economic growth, is the more important quest for poverty reduction. While it is to be expected that poverty reduction is accompanied by economic growth, the Philippines could be among several cases showing that economic growth per se does not guarantee poverty reduction. That the GDP rises does not mean that all, especially the poorest households, will benefit. At best, depending on which poverty indicators are considered, and if shorter time periods are examined, the Philippines can be said to experience pro-poor growth only erratically. That is, sometimes it does, sometimes it does not (Kakwani and Son, 2006). There is no strong evidence of a sustained, long-term trend of pro-poor growth. On the contrary, the S.W.S. survey results add credibility to the current stock of research showing that the Philippines’ economic growth occurs with levels of poverty reduction that are quite disappointing, especially compared to those of other developing countries (Balisacan, 2006; Balisacan and Fuwa, 2004; Cline, 2004; Ravallion 2001). Levels of economic growth and poverty reduction cannot be understood without considering the role of a third variable: inequality. The distribution can be so skewed that any increase in the size of the economic pie will only be cornered by the few who are already well off, while the increasing number living in poverty will realize only a disproportionately small share. Thus, when economic growth occurs, poverty incidence will decrease if and only if inequality remains stagnant or becomes less severe. Similarly, when the economy does grow but inequality worsens, then of course the impact of growth on poverty incidence will be muted (Ravallion, 1997, 2007; World Bank, 2005a). While there are developing countries where economic growth has occurred with decreasing or stagnant inequality, there are just as many cases where economic growth has been accompanied by a tendency towards rising inequality (Ravallion and Chen, 1997). It is to this latter group that the Philippines has belonged since the late 1980s (Ravallion, 2001; Pernia, 2003). When the 2006 World Development Report entitled “Equity and Development” was released, the World Bank could not be clearer on the implications for the Philippines of the linkages among growth, inequality and poverty. Citing cross-country data (Table 1), the Bank’s Philippines Country Office argued, “The richest 5% of households in the Philippines account for nearly a third of national income, while the poorest 25% account for only 6%. Compared to its neighboring countries, like Indonesia, Vietnam and 2

Thailand, inequality measures are high in the Philippines… High inequality and modest economic growth have translated into slow progress on poverty reduction in the Philippines.” Table 1. Inequality and poverty incidence in the Philippines, Thailand, Indonesia and Vietnam Gini 1990-2000 Poverty Index Incidence Decline a (percentage points) Philippin es 0.47 5 Thailand 0.43 9 Vietnam 0.37 -Indonesi 0.34 11 a a The Philippines’ Gini Index is for the year 2003. Those of Vietnam and Indonesia are for 2002. That of Thailand is for the year 2000. Source: World Bank, 2005c. The possible explanations The latest S.W.S. figures seem to show that the disappointing levels of growth elasticity of poverty seem to be a pattern that continues to hold. Why is poverty incidence not very responsive to economic growth in the Philippines? Of the contributing factors, among the most striking seems to be the sectoral composition of the economy, and the geographic variations of its growth and of poverty incidence. 1.

The sector composition of the economy

When a reporter pressed for explanations at the Malacañang press conference, the President pointed to mining as the source of extraordinary economic growth in 2007. She even asked Chamber of Mines head Mr. Benjamin Romualdez, who accompanied her to the event, to explain the contribution of mining to this GDP growth. The current administration is correct in its claim that mining’s contribution to GNP and GDP has improved. What was left out of the discussion, however, was that, historically, mining remains the smallest contributor to GDP, second only to forestry (Figure 1). It has also never been an area of major employment generation for the Philippines (Figure 2).

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Agri. & Fishery

100,000

Figure 1. GNP by sector

Forestry

(at constant 1985 prices) Mining and Quarrying

80,000

Manufacturing Construction

PhP 1,000,000

60,000

Electricity, Gas & Water Transport, Comm. &Storage Trade

40,000

Finance 20,000 Ownership of Dwellings & Real Estate Private Services

0 1990

1995

Year

2000

2005

Govt.Services

Figure 2. Employment by industry, 2006 Public Admin…

Fishing 4%

Private Households

Mining & Quarrying 0.43%

Other 13%

Agri., Hunting & Forestry 32%

Construction Transport… Manufacturing 9%

Wholesale & Retail… 19%

The mining industry keeps trying to point out that it has spill-over employment effects in other sectors, for instance in the areas of transport, construction, and equipment maintenance and repairs. These are, however, temporary activities that will not outlast the life of a mine.

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Also, the value added and employment contributions of the mining sector are kept to a minimum as companies are not required to undertake manufacturing activities locally, and generally export mined minerals in their unprocessed state. The high value-added and employment-generating stages of production and processing remain overseas, and are not major areas of mining companies’ exposure in the Philippines. Moreover, the negative environmental impact of mining has a downward impact on the productivity of farms and fishing grounds, which are larger contributors to livelihoods for poor households. Tourism is wagered as well, as many potential sites for eco-tourism development are in watershed areas that are compromised by open-pit mining activities. Thus, despite the much celebrated re-energizing of the mining industry, it cannot be regarded as the engine of economic growth that is coupled with poverty reduction. It does not generate employment on a scale that could alter the present picture. Most of the poor remain in the farm sector, increasingly crowding farms, and depressing per capita GDP in agriculture as population increases. Preliminary estimates of the National Statistics Coordination Board indicate that the per capita GDP contribution of agriculture for the first half of 2007 has shrunk to just above five percent. 2. Geographic variation in economic growth and poverty Persistent inequality is evident in regional variations as well. In Figure 3, a narrow white band representing urban poverty headcount is stacked on top of a dark colored and much wider area indicating rural poverty headcount. It shows that the vast majority of poor families in the Philippines are found in rural areas. They are engaged mainly in agriculture. In this light, any major movement towards poverty reduction in this country requires a massive decrease in poverty among rural farm households in particular. Economic growth will occur with more appreciable poverty reduction, if its main drivers can generate income and employment for these families. Figure 3. Philippine urban and rural poverty incidence, Regions I-XII, the Autonomous Region of Muslim Mindanao (ARMM) and the National Capital Region (NCR)

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Population below the poverty line

4,000,000

Urban Rural

2000 3,000,000

2,000,000

1,000,000

0

NCR

I

III

V

Region

VII

IX

XI

ARMM

Figure 4 shows intense regional disparities in income and infant mortality, a health indicator of poverty, and perhaps even a predictor of the quality of the future labor force of each region. In this picture, each bubble represents one region, and its size depicts the population size of that region. The National Capital Region, the largest and most progressive urban center in the Philippines, floats alone on the high-income, low-mortality corner, while all other regions appear as a clump of grapes in the lowincome, high-mortality end of the graph. Figure 4. Infant mortality and GDP per capita, Regions IXII, the Autonomous Region of Muslim Mindanao (ARMM) and the National Capital Region (NCR) 70

VIII

60

Infant deaths per 1,000 live births

ARMM

Caraga

50

IX I

40

XI

X

CAR

II III

V

30

2000

XII

VI

VII

NCR

20

10

0

0

20

40

60

80

100

GDP per capita (thousands of Philippine pesos)

6

120

The experiences of Cuba and Bangladesh teach us that it is not how much income one has that causes low infant mortality rates, but how that income is spent. Figure 4 is shown here, not to imply causality, but merely to illustrate where the direst need seems to be. Plotting income levels and poverty in health, the NCR does not even seem to be in the same country as the rest of the Philippines. Moreover, the regions that exhibit the greatest deprivation are all in Mindanao, with the exception of Region VIII and the Cordilleras. Such basic welfare inequities suggest that the grounds for propoor growth are hardly in place. Therefore the Philippines’ recordbreaking 2007 GDP growth is not at all incongruous with worse poverty figures found by the S.W.S. in the same year. References Balisacan, Arsenio M. March 2007. “Why Does Poverty Persist in the Philippines? Facts, Fancies and Policies.” SEARCA Agriculture and Development Discussion Paper Series No. 2007-1. Balisacan, Arsenio M. 2006. “Local Growth and Poverty Reduction.” Dynamics of Regional Development: The Philippines in East Asia. Edward Elgar, United Kingdom. Balisacan, Arsenio M. and N. Fuwa. 2004. “Going beyond Crosscountry Averages: Growth, Inequality and Poverty Reduction in the Philippines.” World Development 32: 11, pp. 1,891–907. Cline, W.R. 2004. “Technical Correction.” Trade Policy and Global Poverty. Institute of International Economics, Washington DC. Kakwani, Nanak and Hyun H. Son. October 2006. “Global Estimates of Pro-Poor Growth.” Working Paper No. 11. International Poverty Center, United Nations Development Programme. Pernia, Ernesto M. June 2003. “Pro-Poor Growth: What is It and How is It Important?” Economics and Research Department, Asian Development Bank, Manila. Ravallion, Martin. 2007 “Inequality is Bad for the Poor.” Inequality and Poverty Re- Examined. Edited by John Micklewright and Steven Jenkins. Oxford: Oxford University Press. Ravallion, Martin. February 2001. “Growth, Inequality, and Poverty: Looking beyond Averages.” Policy Research Working Paper 2558. The World Bank Development Research Group, Poverty and Human Resources. Ravallion, Martin. 1997. “Can High Inequality Developing Countries Escape Absolute Poverty?” Economics Letters 56, 51-57. Ravallion, Martin and Shaohua Chen, 1997, "What Can New Survey Data Tell Us about Recent Changes in Distribution and Poverty?," World Bank Economic Review, 11(2): 357-82. World Bank. 2005s “Equity and Development.” World Development Report 2006.

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World Bank. September 21, 2005b “New World Development Report: Equity is Key to Poverty Reduction and Growth”. World Bank Philippines Country Office. World Bank. April 15, 2005c. “Philippines: From Short-Term Growth to Sustained Development.” Report No. 32055-PH. Manila.

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